View full sizeCHRISTINE BAKER, The Patriot-News/fileHarrisburg's incinerator debt has been growing by $1 million a month.

Since June 2010, delays caused by the arguing among City Council, the Dauphin County commissioners, state lawmakers and creditors over how to pay off the debt have allowed it to grow from $307 million to about $330 million.

The monthly increase is a combination of interest and collection fees, attorney costs and late penalties all piling up on the mountain of money initially borrowed for the ill-fated incinerator retrofit.

Even after the assets are sold, however, there will be leftover incinerator debt. And a majority of the council and Harrisburg Controller Dan Miller believe the only avenue to get the city’s creditors to make concessions on the debt is through bankruptcy court.

But against the wishes of Harrisburg receiver William Lynch, the state extended a moratorium that prevents the city from filing for bankruptcy through November.

Cory Angell, Lynch’s spokesman, said the longer it takes to iron out the city’s debt crisis, the more the situation worsens.

“We have to go to court on Thursday. Any time that you have to go to court, it's going to steal time and energy, and it certainly takes away from the recovery process,” Angell said. “The longer we wait, the worse the problem becomes.”

Miller said the fees that continue to accumulate month after month will have to be written off because there is no way the city can afford to pay them. And that could mean that Assured Guaranty Municipal Corp., the bond insurance company backing the debt, could have to eat those fees, he said.

“I think that is sort of bogus. There is only so much money. It just will get written off, I suspect, when this all washes away,” said Miller, who has thrown his hat into next year’s race for mayor.

AGM refused to comment on Miller’s prediction. Dauphin County commissioners did not respond to interview requests. AGM insured most of the incinerator debt and the county has guaranteed about half.

Lynch on Thursday also will ask the court to force the council to rehire Robert Philbin, Mayor Linda Thompson’s spokesman. Philbin’s position is also part of the recovery plan.

Philbin, who would earn $75,000 annually in the position, said that council’s bankruptcy petition and continued rejection of the state’s financial recovery plan have cost taxpayers millions of dollars in unnecessary fees.

“If you look at how long the process has been stalled by legal filings for bankruptcy, and council’s rejection of the planning process at every step along the way, it probably cost the taxpayer an additional $12 million or more, depending when you want to start counting,” Philbin said.

“It’s now August 2012 and we’re still waiting the outcome of a court mandamus action compelling City Council to fully engage with the plan,” he said.

City Councilman Brad Koplinski disagreed.

He said the amount of time it’s taking the state to leverage Harrisburg’s assets is the reason the debt continues to rise. Council has not stood in the way of the lease and sale of city assets, Koplinski said.

The sale of the incinerator, lease of Harrisburg’s parking system and farming out the management of the city’s water and sewer systems, all of which were supposed to be completed by the end of June, are the main tools the state is using to pay down the debt, Koplinski said.

“The sale of the assets are the city’s contribution toward a global solution. The receiver’s team is negotiating the sale and lease of the city’s parking garages,” he said. “The plan is moving. The EIT is a small part of that plan, and while it is a big part for the taxpayers of the city, the assets cover most of the tens of millions of dollars that are being negotiated with creditors.”

The receiver’s office expects to close on the incinerator sale and parking system lease by the end of the year, and it has pushed back the management lease of the water and sewer systems to an unspecified date.

Leveraging the assets is a timely process, but council’s opposition to the EIT increase affects the debt recovery process that addresses the debt and budget deficit, Angell said.

The city also is grappling with budget problems.

At the direction of the receiver’s office, Harrisburg skipped a $5.3 million general obligation debt payment in March and it faces a $3.4 million bond debt payment on Sept. 15. Miller said the only way Harrisburg could continue paying employees and other bills is if it skips the September payment.

The city is staring at an almost $15 million budget deficit this year, including the missed March debt payment and the September payment, Miller said.

Harrisburg entered the state’s Act 47 program for distressed municipalities in December 2010. After council rejected the original debt plan the state drew up for it, the commonwealth took over the city’s fiscal recovery process in November 2011.

Council attempted to file for bankruptcy as the state took over, but its petition to apply for Chapter 9 protection was dismissed, as were subsequent appeals of that ruling.

Several city officials have filed a lawsuit in federal court, claiming that the takeover of Harrisburg is unconstitutional.

Before former receiver David Unkovic abruptly quit in March, he called for state and federal criminal investigations of the incinerator project. He also said a county commissioner, a state lawmaker and a connected Harrisburg lobbying firm were trying to force him to rubber stamp the original Act 47 financial recovery plan that council rejected in August 2011.

The state Senate’s Local Government Committee plans a hearing on the incinerator finances at the end of the month.

Koplinski said rejecting the recovery plan was the best thing council could have done.

“If we had passed the Act 47 plan last year, we would not have gotten the best price for our assets and Wall Street would be paid in full, tax rates for citizens would have gone up anyway and nobody would be investigating,” he said.

Koplinski added, “If we could have filed for bankruptcy, the lawsuits and costs would have stopped.”

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